VERO BEACH — After last week’s realization by the Vero Beach City Council, staff and attorneys working on the transaction that the sale of Vero Electric to Florida Power and Light is now dead, a stark analysis of the way Vero electric does business is expected to take center stage.
In May, the Council voted to put a comprehensive rate study out for bid, with Mayor Dick Winger saying Vero needs some experts, possibly a “team” of consultants looking for innovative ways to get rates down. Staff is in the process of preparing that request for proposal, City Manager Jim O’Connor said.
Also in the works are more than a dozen ideas floated by members of the city’s Utilities and Finance commissions and by various council members, including a pitch by Vice Mayor Jay Kramer to renegotiate the city’s 20-year, $2 billion wholesale power contract with the Orlando Utilities Commission to allow Vero to shut down part or all of the aging Big Blue power plant.
The contract, which was signed in 2008 and became effective Jan. 1, 2010, not only includes annual increases of at least 3 percent, but it also binds the city – in exchange for OUC reserving capacity to provide for Vero’s peak load – to pay a portion of the operation of Orlando’s Stanton coal plants whether or not those plants are burning coal to produce power. When natural gas is cheaper, OUC burns gas to produce electricity, but it still must pay to staff and maintain its coal plants, just like Vero must staff and maintain Big Blue whether the power plant ever fires up its generators.
Those fixed charges built into the OUC deal when it’s cost-prohibitive to burn coal have driven Vero’s monthly bills from OUC up higher than was touted by consultants and the council led by Mayor Tom White, Vice Mayor Sabin Abell, Councilwoman Debra Fromang, Councilman Ken Daige and Councilman Bill Fish at the time of the agreement.
When Vero transitioned from the Florida Municipal Power Agency’s All-Requirements Project for wholesale power to OUC in 2010, Vero ratepayers were promised the new deal would usher in “rates equal to or less than FPL.” That reality, sadly, has not materialized.
Kramer asserts that, after Vero notified OUC that it intended to exit the wholesale power contract for the purposes of selling its utility to FPL, OUC violated the contract provisions by cutting a better deal with the City of Lake Worth for wholesale power. That leverage should, Kramer speculated, give Vero an opener through which to re-do the terms prior to the contract’s 2030 termination.
“The renegotiation of the OUC contracts may have some complication with our FPL sales agreement in place but we are discussing this internally. OUC has said they will be willing to talk about the contract so we have had brief discussions but not too much in detail,” O’Connor said.
The OUC contract has two facets, which together require Vero to keep its power plant operational. Kramer and Winger advocate shutting the power plant down, a move that could save upwards of $3 million annually, or approximately 3 percent shaved off rates. Presumably, Vero could lay off the 28 full-time power plant workers and realize other savings from not operating the plant. However, in order to shut Big Blue down, FPL had planned to spend $20 in transmission upgrades, plant decommissioning and relocating the riverfront substation across Indian River Boulevard. Vero would be responsible for any environmental cleanup necessary on the site after FPL returned it to the city leveled to the ground.
Councilwoman Pilar Turner has pointed out numerous times that the Kramer-Winger plan does not even begin to contemplate what upgrades Vero might be required by regulators to do to maintain the integrity of the grid.
Winger told Vero Beach 32963 last month that he is well aware of the potential need for transmission upgrades, but conceded that staff has yet to get a handle on those costs. That is one reason, he said, why he wants a full-blown rate study done, to analyze the costs and benefits of every viable option.
In addition to the rate study, which will be done by consultants, city staff has also been tasked with searching high and low for efficiencies. Staff had this spring promised to do a strengths, weaknesses, opportunities and threats (SWOT) analysis of the items which were proposed, but not yet acted upon, to reduce rates.
“We are still putting information together so we have nothing to release but in fact have already implemented some of the ideas, debt retirement and appointment of a Utility Director,” O’Connor said.
Utility Director Tom Richards, who was promoted from Director of Power Resources, had been acting as the de facto utility director since he’d been hired. With more than three decades in the electric business, much of that in management or executive capacity, Richards is apparently more than qualified to manage Vero electric going forward.
Kramer had said, and Winger had recently joined him in the sentiment, that Richards and O’Connor were somehow being prevented from efficiently managing the utility due to the pending purchase and sale agreement with FPL.
O’Connor has countered that the staff’s “hands were not tied” with relation to strategic management or day-to-day operations of the utility. Finance Director Cindy Lawson has been analyzing revenues, consumption and expenditures of the utility on at least a quarterly basis and she, O’Connor and Richards have been recommending regular tweaks of electric rates, when appropriate.
In late 2013, staff recommended a slight 1.9 percent increase in rates, but that was mitigated by two decreases, the first by 1.1 percent in the spring and the latest by 4.2 percent, effective June 1.
“I don’t see that the 1.1 percent and the 4.2 percent would get us down to Florida Power and Light rates,” Winger said after the May 20 vote to reduce Vero’s bulk power charge from $75 to $69.50 per 1,000 kilowatt hours.
At current rates, inclusive of the June 1 reduction, Vero electric customers pay $129.43 plus taxes, which is roughly 26.4 percent more than the $97.97 plus taxes that FPL customers pay for 1,000 kilowatt hours of power.
It is this rate disparity that, in large part, has driven the five-year failed effort to sell the electric utility.
Also yet to be ironed out is how Vero will get itself out from under nearly $40 million in pension liabilities without the proceeds from the sale to FPL. Costs associated with a pension solution, plus recent salary increases awarded to employees, could further thwart the council’s efforts to get rates down via operational efficiency measures.
